Let the home buyers' tax credit expire
The Obama administration is debating whether to extend a tax credit for first-time home buyers. Economics correspondent Chris Farrell tells Bill Radke why he thinks they shouldn't.
Economics editor Chris Farrell (American Public Media)
More on Housing - Real Estate
TEXT OF INTERVIEW
Bill Radke: The Obama administration is debating whether to extend a popular tax credit for first-time home buyers. This is the $8,000 tax credit, and it's set to expire at the end of November. Marketplace's economics correspondent Chris Farrell says -- don't extend it, let it expire. Good morning, Chris.
Chris Farrell: Good morning.
Radke: If an $8,000 tax credit helps people get into a house in these tough times, and it helps our sickly housing market, why not extend it?
Farrell: Because we don't need it any longer. Look, the $8,000 tax credit did help stabilize the market. There's no question about that. But I think if you look into the data -- the housing market is stabilizing. And I have to tell you, Bill, one of the reasons we got into the trouble we're in? Is that the government gave so much support to the housing market.
Radke: Well the theory, of course, is that when people own homes that now they're stakeholders, and they're more responsible, better neighbors, and over time they've built wealth because of it.
Farrell: Right. And then they also contributed to what -- $7-8 trillion real-estate bubble, which we're still dealing with the after-effects of that. Plus we do have to remember, people want to be buying homes. This is what I really think is going to happen over the next coming years: The real-estate market is going to become the most boring market imaginable.
Radke: Why boring?
Farrell: Prices aren't going to go up much. They're aren't going to go down much. No one's going to get excited about real estate, and I think that's a good thing. Look, the injection worked. Let's not continue it.
Radke: The market may be stabilizing, but we keep getting told -- we keep reporting on this program -- foreclosures are still very high, and there's a lot more to come. Are you sure this is not still too tender an area of our economy?
Farrell: Oh I think it's a very tender area of our economy. I have no question about that. But does it need a continued injection of subsidy by the government? Mortgages rates are what -- down about 5 percent. Prices have come down a lot. We are seeing some stirring of buyers. And quite frankly, I just don't think that it needs the stimulus of $8,000. Now, I know. I know the real-estate industry, they're saying, "This is the end of the world." It's not and we should stop subsidizing this industry. There is nothing wrong -- this is a radical statement I know -- but there is nothing wrong with renting.
Radke: OK. Marketplace's economic correspondent Chris Farrell. Great to talk with you.
Farrell: Thanks a lot.
Comments
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From Ann Arbor, 10/23/2009
Another big RIGHT ON! to Chris.
For way too long the U.S. government has been “helping out” the housing/construction industry. Most of these times it creates a “bubble”, which collapses as bubbles must, followed by some sort of ”bailout” at taxpayer expense. I’m not sure that the post-WW 2 GI bill caused an overshoot, followed by a collapse, in the industry. But the S&L crisis in the ‘80s was certainly the result of over-building encouraged following the recession of the early ‘80s. And the present mess is the result of` a “perfect storm” of policies feeding on each other, triggered by the collapse of an over stimulated – “loan to anyone who can sign on or near the line” – housing market.
It must be that government fails to learn from history.
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